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Will the SEC Finally Ban Broker Votes in Board Elections?Submitted by: Ted Allen, Publications

The New York Stock Exchange (NYSE) has reissued a proposal to ban discretionary broker voting in uncontested board elections, prompting speculation among governance observers that the Securities and Exchange Commission may approve the rule change soon.

The proposed amendments to NYSE Rule 452 would remove uncontested board elections from the list of ?routine? matters where brokers can vote client shares if they don?t receive instructions within 10 days of a company?s annual meeting.

Traditionally, many brokers have cast these uninstructed shares in favor of management nominees, a practice that can blunt the impact of ?vote no? campaigns. Labor funds and other activists, which support the rule change, have denounced broker voting as ?legalized ballot-box stuffing.? Broker votes account for an estimated 19 percent of the votes cast at U.S. corporate meetings, according to Broadridge Financial.

On Feb. 26, the NYSE issued a third revised draft, and the SEC posted the rule for public comment. The rule change would apply to meetings after Jan. 1, 2010, assuming the commission approves it by then.

The proposed rule has languished at the SEC for several years. The NYSE, which first proposed the policy change in 2006, revised the draft rule to exempt mutual fund companies after they complained about the difficulties of reaching quorum. In 2007, SEC officials said they would address broker voting along with other proxy reforms, but ultimately the agency took no action. The issue wasn?t addressed in 2008, when the SEC lacked a full set of commissioners during the first half of the year. In the meantime, some brokers have started using ?proportional voting? (i.e., based on how their other clients have voted) to allocate uninstructed shares.

However, the new leadership of the SEC appears to be more receptive to the rule change. In a Feb. 18 speech, Commissioner Elisse Walter said, ?we should move forward and determine whether to adopt these amendments? to Rule 452.

Barring broker votes, together with the majority-vote bylaws adopted by many large companies since 2006, would further elevate the importance of board elections in the U.S. market. Activists also are hopeful that the SEC will propose a proxy access rule this year to allow investors to nominate board candidates to appear on management proxy statements.

The SEC is accepting public comments on the proposed NYSE rule through this link.

Full post as published by Institutional Shareholder Services -- Corporate Governance Blog on March 09, 2009 (boomark / email).